There are things we all want to do in life, but there’s something we all SHOULD do. Estate planning to prepare for a time we may not be able to care for ourselves, and for what happens when we’re gone.
It’s uncomfortable to think about something happening that means we can’t make our own decisions or look after ourselves. And, no-one likes thinking about what happens when they’re gone. But it’s important to make sure you’ll be taken care of if you can’t look after yourself, and that your wishes are fulfilled when you pass away.
The way to let your loved ones know how to care for you, and what to do with your possessions and money when you pass away, is called estate planning.
Here’s what you need to know about estate planning.
1. What is estate planning?
Estate planning is a process where you formally document what you want to happen to your personal belongings and financial assets after you're gone. This process also includes appointing people to make financial decisions on your behalf and recording your preferences for your personal care and medical treatment should you ever lose the ability to make these decisions for yourself.
Then when the time comes, your possessions and assets will be distributed in accordance with your wishes. Done right, this will provide clear guidance and alleviate stress and uncertainty about your preferences when you are no longer able to make your own decisions.
2. What could your estate plan include?
An estate plan may include but is not limited to:
- Your will – legal document that includes instructions for when you pass away, including who will inherit your possessions and money.
- Beneficiary nominations – who will receive your super and life insurance.
- Executor nomination – person or people responsible for acting on the instructions in your will.
- Enduring power of attorney – person or people who can make financial decisions on your behalf.
- Enduring guardian – person or people who can make medical, health and lifestyle decisions for you.
3. What do you need to consider when creating your will?
Here are some things to get you started when you’re creating a will:
- Who you want to pass your personal possessions to. Be specific about what you want to happen, especially for family heirlooms and valuables.
- How you want to distribute your money and other financial assets amongst your loved ones. Also, consider if you want to donate to charity.
- If you have minor children, include who will be their guardian and any financial provisions you want to make for their care.
- Anyone who is financially dependent on you needs to be adequately catered for under the law.
- If you have furry friends, decide if you need to spell out how they will be cared for.
- List your digital accounts and assets including social media and your photos and other items saved online.
- Carefully think about who you want to name as the executor of your will. You need to be able to rely on them to act as you would. You may choose a family member, friend or lawyer, for example.
Other things to be aware of:
- Your heirs may have to pay tax because different tax obligations apply to the distribution of different financial assets. A good estate plan will ensure your assets are passed on in the most tax effective manner possible.
- Generally, property co-owned as ‘joint tenants’ automatically passes to the other person or people who are named owners.
- Minor children or anyone vulnerable may not be capable of managing money or legally be able to own some assets until they come of age. In this case, special testamentary trust provisions may be required.
- Most importantly, you need to make sure your will is legally valid. Read on to find out who can help with that.
4. What does the executor do?
The executor is the person legally in charge of actioning what’s stated in your will. Often, a lawyer will help the executor.
A large part of this is paying off any debts, closing accounts, collecting assets such as life insurance, organising your funeral, and arranging for your possessions and money to be passed onto the beneficiaries nominated in your will.
Generally, they’ll also need to apply to the court for a grant of probate. This confirms your will is valid and gives your executor the authority to manage the estate in accordance with the provisions in your will.
5. What happens to your super?
These days super can make up one of our largest assets. However, wills typically only cover assets you own personally, like your house and car. Super is different as it is held in a trust for you by your super fund trustee (the company that manages your super fund).
You can tell your super fund who your super should be paid to when you pass away. This is done by completing a death benefit nomination. Get in touch with your super fund to complete this step. If you’re unsure, see who you can nominate as beneficiaries.
If you don't make a nomination and something happens to you, your super fund trustee may get to decide who your super goes to.
You may need to make similar nominations if you have life insurance outside super or other investment accounts. Also, some types of beneficiary nominations only apply for a period of time and need to be renewed regularly.
6. How can you make it easier for your family?
Once you’ve had a chance to think everything through, it’s worth discussing with your family what you want to happen and why. It’s not the most comfortable conversation but may save some heartache later on.
You should also speak with the executor of your will to let them know where to find your will and other important documents. If your executor isn’t a lawyer, you may still choose to give these documents to a lawyer for safe keeping.
7. Can you do it yourself?
There are DIY options for creating a will and it can be simple if your circumstances are straightforward.
However, DIY kits aren’t always adequate when things get complex, which is where a lawyer can help. This also ensures you create a legally binding will. This is important as if a court decided your will isn’t valid, then you may not have any choice about what happens after you pass away.
8. Is it set and forget?
Things change over time – your relationships, possessions, intentions. So your estate plan should change too. At the very least, revisit your will after a significant life event such as the birth of a child or grandchild, divorce or windfall.
9. What can you do in case you can’t look after yourself?
Estate planning should also include what you want to happen if you can’t make decisions for yourself. This may be because of illness or advanced age.
You can nominate someone who can make legal and financial decisions for you via an enduring power of attorney. Depending on where you live, the person you nominate may also make medical, health and lifestyle decisions on your behalf. Alternatively, you may need to nominate a separate enduring guardian to make these decisions for you. You can nominate one person, several people, or different people to make these decisions for you.
It can be confronting but it’s important to think about how you’d like to be looked after and who you’d trust to make decisions on your behalf. Unfortunately, research shows one in six older Australians report some form of abuse in their later years, with financial abuse being one of the most common*.
10. Where can you get help with your estate plan?
Estate planning can be a tricky road to navigate, with a number of legal and tax implications along the way. So, it can be helpful to speak to a specialist estate planning lawyer and your financial adviser.
The State Trustee or Legal Aid Service for where you live can be helpful if you want support and can direct you to a legal professional if needed.
If you don’t have a financial adviser, you can use our find an adviser service.
* Australian Institute of Family Studies – National Eder Abuse Prevalence Study: Final Report